The United States on Tuesday declined to name China as a currency manipulator although it remained critical of the Chinese government’s economic policies ahead of a planned visit to Beijing by President Donald Trump.
The semi-annual US Treasury currency report said no countries deserved the currency manipulator label, but it kept China on a currency “monitoring list” despite a fall in China’s global current account surplus since 2016. China’s currency, the renminbi or yuan, also has strengthened sharply against the dollar this year, reversing three straight years of weakening.
The Treasury cited China’s unusually large, bilateral trade surplus with the United States.
“Treasury remains concerned by the lack of progress made in reducing the bilateral trade surplus,” the department said in the report. “China continues to pursue a wide array of policies that limit market access for imported goods and services.”
The US-China trade deficit stood at $34.9 billion in August, near a two-year high.
Four other trading partners which were on the monitoring list in April – Japan, South Korea, Germany and Switzerland – remained on the list. The administration said it was removing Taiwan from the list because it had reduced the scale of its foreign exchange interventions.
Deputy governor Ching-Long Yang said Taiwan’s central bank will continue the currency dialogue with Washington.
South Korea’s finance ministry official in charge of currency markets said Washington’s decision was as expected, noting the shrinking trade surplus with the United States helped his country avoid the “currency manipulator” label.
“Currency markets should be market-oriented, and we conduct smoothing operations only in cases of sharp volatility,” Kim Yoon-kyung, director general at the ministry’s International Finance Bureau, told Reuters by phone.
Trump, who on the campaign trail blamed China for “stealing” US jobs and prosperity by cheapening its currency, had repeatedly promised to label the country as a currency manipulator on “day one” of a Trump administration – a move that would trigger special negotiations and could lead to punitive duties and other action.
But the president’s comments on China have been less harsh since he took office in January. Trump has said he would like Beijing’s help in pressuring North Korea to abandon a nuclear weapons program, and plans to meet Chinese President Xi Jinping on a trip to Beijing in November.
Currency market analysts by and large had not expected the Trump administration to take a hard line on the currency issue now in the context of the North Korea tensions.
“There’s a necessity for the best possible cooperation we can get out of China on the North Korea issue, and labeling them a currency manipulator is probably not the best way to go about that,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
“In addition, there are very specific criteria at the Treasury for labeling someone a currency manipulator and over the past year and a half China simply does not fit those categories.”
As in its previous report on currencies in April, the Treasury criticized China’s past efforts to hold down the yuan’s value. But it said more recent efforts by Beijing to prevent a sudden depreciation of the yuan had probably helped the United States.
“A disorderly currency depreciation … would have had negative consequences for the United States, China and the global economy,” the Treasury said.
In fact, after three years of depreciating against the dollar in which it weakened by more than 12 percent, the yuan this year has strengthened by nearly 5 percent. It was not yet trading following the report’s release but the offshore yuan was little changed against the dollar.
The Treasury did not alter its three major thresholds for identifying currency manipulation put in place last year by the Obama administration: a bilateral trade surplus with the United States of $20 billion or more; a global current account surplus of at least 3 percent of gross domestic product, and persistent foreign exchange purchases equal to 2 percent of GDP over 12 months.
No countries were determined to have met all three of these criteria. Treasury said a country would be put on the monitoring list if it met two of the criteria or if it accounted for a large and disproportionate share of the overall U.S. trade deficit.
It also said countries put on the list would stay there for at least two consecutive currency reports “to help ensure that any improvement in performance versus the criteria is durable”.